• MoneyMarci

Don't let a sunk cost sink you! 11/30/2021

Updated: Jul 29

I recently saw a post on a friend's wall in Facebook about recognizing that while we say 'never quit', many people may misinterpret making a change as quitting something. It is true in a way, to take a new job you have to quit the old one. Or to re-orient your education to your true passion (hopefully) you may have to give up the credits you earned towards your original degree. Working toward your best you is an investment and giving up things that aren't right for you is a course correction. You aren't quitting on yourself; you are leaving something that doesn't serve you.


In accounting there is a term 'sunk cost'. A sunk cost is the money that you have already spent. The sunk cost fallacy is when people feel they have to continue to pursue something because of the money they have already invested in it. In truth, the sunk cost money is gone, and you shouldn't give too much weight its value when making your decision.


I started college with a planned degree in political science and potentially going to law school. I quickly learned that it wasn't as interesting to me as I had expected. Those classes were already done and paid for. Finishing a degree that I wasn't interested in, to go back to school later to get a degree that I was interested in meant I would be spending even more time and money than just changing degrees and moving forward.


I have friends who started college and then realized that what they wanted to do did not require a college degree. Some chose to finish it for their own comfort, some chose to drop it to pursue their passion. Both of those are valid choices, as long as they made it for themselves, not to follow the money that was already spent.


The opposite of the sunk cost fallacy is not to throw good money after bad. Not that the first decision was bad, but if it no longer serves you - a job, a house, an education, whatever - it's ok to be true to yourself and move on.


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